Surge in Overdraft Accounts Amid Stock Market Decline

Recent stock market declines have prompted a 30-something office worker, identified as A, to view the downturn as a buying opportunity for shares in Samsung Electronics and SK Hynix. With stock prices dropping to levels seen earlier this year, A decided to take on debt through an overdraft account to fund the investments, despite acknowledging the risks. "If it were spare money, I would wait, but I'm worried about the consequences if the stock prices fall further since I borrowed money to invest," A said.

According to financial sources, the total balance of overdraft accounts at the five major banks increased by 559.1 billion won in just five days this month, accounting for nearly 90% of last month's total increase. This surge is believed to reflect some demand for 'debt investment' as investors borrow to purchase stocks amid falling prices.

As of November 5, the combined balance of overdraft accounts at KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup banks stood at 44.1541 trillion won, up 559.1 billion won (1.28%) from the end of October, when it was 43.595 trillion won.

The balance of overdraft accounts had decreased for two consecutive months, from 44.1732 trillion won at the end of July to 43.957 trillion won at the end of August, and 42.9719 trillion won at the end of September, before reversing course last month. A financial industry official noted, "Historically, when the stock market experiences short-term corrections, the balance of overdraft accounts tends to increase, suggesting that some investors see the current stock decline as a buying opportunity."

Indeed, individual investors have been actively purchasing semiconductor stocks even during the market downturn. On the same day the overdraft account balance was reported, the KOSPI index fell by 5.28%. However, individual investors bought a net total of 2.1179 trillion won worth of shares in Samsung Electronics (1.2277 trillion won) and SK Hynix (890.2 billion won).

The concern is that the perceived bargain prices could drop even further. Particularly for those who invested borrowed money, losses in stock value could compound with interest burdens. For instance, the average interest rate on overdraft accounts at the five major banks was 5.48% in September. Borrowing 10 million won for three months would incur approximately 137,000 won in interest. If the entire borrowed amount were invested in stocks and the stock price fell by 5%, the investor would face an additional loss of 500,000 won, totaling about 637,000 won in losses. The greater the borrowed amount, the larger the losses and interest burdens become.

Jo Dong-geun, an emeritus professor of economics at Myongji University, warned that investors using borrowed funds could find themselves in an uncontrollable situation if stock prices continue to decline, leading to a domino effect of accumulating interest burdens and forced selling of assets.